Unusual Options Activity Review for Wednesday, October 31,? 2012
Wednesday’s Bullish Trading
Netflix (NFLX) was halted in the afternoon and surged 13.9 percent to $79.24 Wednesday after a filing showed activist investor Carl Icahn taking a 10 percent stake in the online video and DVD rental company. The stock rallied on heavy volume of more than 15 million shares. Meanwhile, options volume in Netflix hit 2.5X the daily average. 92,000 calls and 80,000 puts traded on the stock. Weekly 70 and 75 calls, which expire in just two days, were the most actives. The Weekly 65 and 70 puts were the next most actives. Meanwhile, implied volatility in NFLX options was up 6 percent to 68.
Bullish trading was also seen in Verisign (VRSN), Groupon (GRPN) and Gold Fields (GFI).
Wednesday’s Bearish Trading
US Airways (LCC) was up 26 cents to $12.18 and showed some resilience Wednesday in the wake of Hurricane Sandy. Some feared that airlines would take it on the chin after the two-day market closure, because the disaster also resulted in 18,000 flight cancellations and completely shuttered the three big airports around New York City. Dow Jones estimates that Sandy could hit the airlines $25 to $45 million apiece to their fourth quarter bottom line results. Some investors might therefore be hedging their views in LCC, as about 15,000 puts and 2,300 calls traded on the airliner Wednesday. January 9 puts were the most actives. More than 10,000 contracts traded.
Bearish trading was also seen in Sony (SNE), Avon (AVP), and Exelixis (EXEL).
Index Recap
CBOE Volatility Index (.VIX) hit a morning low of 17.56, midday high of 18.84, and settled up .79 to 18.60 on a very choppy day of market action Wednesday. The S&P 500 (.SPX) bounced around in a 13-point range and finished up just .22 points to 1,412.16. Overall options volumes were light, however, as many market participants on the East Coast are still dealing with the fallout from Sandy. In the index market, for example, 541,000 calls and 495,000 puts traded on VIX, SPX and other cash index products, which is only 85 percent the daily average, according to Trade Alert data. Deep out-of-the-money November 1,500 calls on SPX were the most actives. 34,140 traded. VIX Dec 17 puts, Nov 16 puts and Jan 25 calls were the next most active options in the index market Wednesday.
Analyzing the ETF Market
The two largest options trades in Wednesday’s session were large blocks of puts on the SPDR Oil and Production Fund (XOP). Shares finished down 14 cents to $53.77 and one investor sold 41,000 December 50 puts on the ETF at $1.35 per contract and bought 61,000 December 45 puts for 51 cents each. Open interest in the December 50 puts stands at about 72,000 contracts. And so the hefty sale of puts Wednesday might be a closing trade. Meanwhile, the December 45 puts appear to be new positions (volume exceeds open interest). Taken together, the activity looks like rolling, as an investor is possibly closing a position in the 50 puts to open a new position the 45s. XOP, which is an exchange-traded fund that holds a basket of shares of energy-related names, is down about 6.5 percent in the past two weeks and the activity seems to express concerns about the risk of additional losses in the weeks ahead.
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